Conversion Cycle for all types of business, principle and goal of lean manufacturing, productions methods used in different organizations and the activities and documents of Traditional manufacturing environment.

1. Habib Ullah Qamar
Govt. College of Commerce Gujranwala
5/14/2016

2.  A company’s conversion cycle transforms
(converts) input resources, such as raw
materials, labor, and overhead, into finished
products or services for sale.
 The conversion cycle exists conceptually in all
organizations, including those in service and
retail industries.
 It is most formal and apparent, however, in
manufacturing firms, which is the our focus of
this chapter.
◦ plan and control production
◦ perform production operations
◦ maintain inventory control
◦ perform cost accounting

3.  This approach evolved from the Toyota Production
System (TPS) based of lean manufacturing.
 The goal of lean manufacturing is to improve
efficiency and effectiveness in product design,
supplier interaction, factory operations, employee
management, and customer relations.
 Key to successful lean manufacturing is achieving
manufacturing flexibility, which involves the physical
organization of production facilities and the
employment of automated technologies.
 These includes computer numerical controlled (CNC)
machines, computer-integrated manufacturing (CIM),
automated storage and retrieval systems (AS/RS),
robotics, computer-aided design (CAD), and
computer-aided manufacturing (CAM).

4.  consists of both physical and information
activities related to manufacturing products
 Plays a central role of the conversion cycle and its
interactions with other business cycles
 Production is triggered by customer orders from
the revenue cycle and/or by sales forecasts from
marketing
 set a production target and pre-pare a
production plan
 Purchase requisitions, Payroll system, work in
process, cost accounting all activities are
involved

6.  Continuous processing creates a homogeneous product
through a continuous series of standard procedures e.g
Cement and petrochemicals This approach firms attempt to
maintain finished-goods inventory at levels needed to meet
expected sales demand.
 Make-to-order processing involves the fabrication of discrete
products in accordance with customer specifications. This
process is initiated by sales orders rather than depleted
inventory levels.
 Batch processing produces discrete groups (batches) of
product. Each item in the batchis similar and requires the
same raw materials and operations. To justify the cost of
setting up and retooling for each batch run, the number of
items in the batch tends to be large.

7.  The sales forecast shows the expected demand for a firm’s finished
goods for a given period.
 The production schedule is the formal plan and authorization to begin
production. 7.3
 The bill of materials (BOM) specifies the types and quantities of the raw
material (RM) for producing a single unit of finished product.7.4
 A route sheet, illustrated in Figure 7-5, shows the production path that
a particular batch of product follows during manufacturing.
 The work order (or production order) draws from BOMs and route sheets
to specify the materials and for each batch and initiate the
manufacturing process in the production departments. Figure 7-6
presents a work order.
 A move ticket, shown in Figure 7-7, records work done in each work
center and authorizes the movement of the job or batch from one work
center to the next.
 A materials requisition authorizes the storekeeper to release materials
(and subassemblies) to individuals or work centers in the production
process.

8.  Production Planning and Control. We first
examine the production planning and control
function. This consists of two main activities: (1)
specifying materials and operations requirements
and (2) production scheduling.
 Materials and Operations Requirements. The raw
materials requirement for a batch of any given
product is the difference between what is needed
and what is available in the raw material
inventory. The operations requirements for the
batch involve the assembly and/or manufacturing
activities that will be applied to the product. This
is determined by assessing route sheet
specifications.

9.  Production Scheduling.
 The second activity of the planning and
control function is production scheduling.
The master schedule for a production run
coordinates the production of many different
batches. The schedule is influenced by time
constraints, batch size, and specifications
derived from BOMs and route sheets. The
scheduling task also produces work orders,
move tickets, and materials requisitions for
each batch in the production run.

10.  Work Centers and Storekeeping
 he actual production operations begin when
workers obtain raw materials from storekeeping
in exchange for materials requisitions. These
materials, as well as the machining and the labor
required to manufacture the product, are applied
in compliance with the work order. When the task
is complete at a particular work center, the
supervisor or other authorized person signs the
move ticket, which authorizes the batch to
proceed to the next work center. Work centers
also fulfill an important role in recording labor
time costs by work center supervisors

11.  Inventory Control.
 The inventory control function consists of three
main activities.
1. First, it provides production planning and control with
status reports on finished goods and raw materials
inventory.
2. Second, the inventory control function is continually
involved in updating the raw material inventory records
from materials requisitions, excess materials
requisitions, and materials return tickets.
3. Finally, upon receipt of the work order from the last
work center, inventory control records the completed
production by updating the finished goods inventory
records.
4. EOQ

12.  Cost accounting activities of the conversion cycle
record the financial effects of the physical events that
are occurring in the production process
 The cost accounting process for a given production
run begins when the production planning and control
department sends a copy of the original work order
to the cost accounting department.
 This marks the beginning of the production event by
causing a new record to be added to the work-in-
process (WIP) file, which is the subsidiary ledger for
the WIP control account in the general ledger.
 Inventory control sends copies of materials
requisitions, excess materials requisitions, and
materials returns.

13.  The various work centers send job tickets and completed
move tickets. These documents, along with standards
provided by the standard cost file, enable cost accounting
to update the affected WIP accounts with the standard
charges for direct labor, material, and manufacturing
overhead (MOH).
 The receipt of the last move ticket for a particular batch
signals the completion of the production process and the
transfer of products from WIP to the FG inventory.
 At this point cost accounting closes the WIP account.
Periodically, summary information regarding charges
(debits) to WIP, reductions (credits) to WIP, and variances
are recorded on journal vouchers and sent to the general
ledger (GL) department for posting to the control
accounts.

15. Accounting Information
System..by
James a Hall
Chapter 7 : Conversion Cycle
http://theITeducation.com/

16. See you again in sha ALLAH
5/14/2016